What Is Better: Debt Consolidation or Refinancing?
Whenever you go on the Internet in search of a method to cut down on those annoying interest rates and fees, you will always find the debt consolidation vs. refinancing discussion. And no wonder, these are the most popular methods of reducing the amount of money you are losing when you have to repay a loan.
The debt consolidation vs. refinancing subject is nothing new, and it will probably go on for years to come. This is why we decided to discuss this topic and find out which method is better.
Refinancing – What Is It?
Refinancing is when you switch your loan to a new lender or to your existing lender to get a new loan with lower interest rates, fees or other taxes. So basically, you get a new loan that will pay off the old one. The main goal is to choose another deal that is less harsh on your financial situation and help you cope with debts better. Refinancing brings lots of benefits if you know how to do it wisely. It can also come with a shortened loan term and other factors that can have a positive impact on your economy.
What Is Debt Consolidation?
With debt consolidation, you can combine all your loans, interest rates, taxes and fees into one loan. By doing so, you will reduce all those taxes, and you will have a bigger chance to get out of debt. Some Aussies have so many loans and taxes to pay that sometimes they can’t keep track of all of them. Since there are so many monthly payments, it is sometimes difficult to decide which one to pay first. Moreover, you might even forget to pay one, and this will harm your credit score.
Debt consolidation brings some major benefits that you will see right away. For instance, instead of making several payments every month, you will make only one. Different payments mean different interest rates, but since you will pay only once, there will be just one interest rate smaller than all the others added together.
This is why most people prefer to combine all those loans into a single one.
Debt Consolidation vs. Refinancing
Ok, so now you know what debt consolidation and refinancing can do to your loan. In the debt consolidation vs. refinancing debate, we will discuss the advantages and disadvantages of using these services.
Most people will lean towards debt consolidation because it simplifies everything. Not only that, but you will no longer have to worry about paying several loans, and you will focus more on one payment. Debt consolidation is an excellent method to reduce the fees you have to pay when you have several loans.
Refinancing doesn’t work that well when you have several loans. If you have different loans from different lenders, it can take you a while until you get your request for refinancing each loan. If you have one or two loans, refinancing makes perfect sense, but for multiple loans, try debt consolidation.
The disadvantage of using any of these methods is the following: you will regain some control of your finances, and because of that, you may be tempted to take another loan. Therefore, you will get into more debt. Before signing any contract, be it for refinancing your loan or consolidating it, read all the details.
See if refinancing or consolidating your loan will reduce the amount of money you pay. Check the interest rates, fees or other forms of taxes. If debt consolidation brings you a higher interest rate that diminishes the other overall benefits, you should probably take a step back. See what the new loan term is. Are there any fees for refinancing or consolidating a loan?
Refinancing usually does hide some fees that you should take into consideration. For example, there’s the exit fee that you will come across when you pay off your loan in a shorter period than the one settled on the contract.
The methods might be attractive, but that doesn’t mean that they are the best for your situation. Check with other lenders and see what deals they offer; you might get a good deal for any of these services.
Debt consolidation vs. refinancing will always be a topic of discussion among many Aussies who pay loans. Each one brings its own benefits, as well as solutions.
Since every person has a different financial problem, it would be better to look into debt consolidation vs. refinancing and evaluate the impact that each can have on your financial situation.
Do your homework and take the best deals you can find. If you wish to refinance or consolidate your debts, contact us on 1300 137 778 or enquire with us for a free assessment today. We offer guidance on the option that is best for you.